ED's seizure of Rs 5,500 cr from Xiaomi highest ever in India

Hyderabad: A competent authority appointed under Section 37A of the Foreign Exchange Management Act (FEMA) has confirmed the seizure order of Rs. 5,551.27 crores, dated 29 April 2022, passed by the Directorate of Enforcement (ED) against Xiaomi Technology India Private Limited under the provisions of FEMA. This is the highest amount of seizure order in India to date.

The competent authority, while confirming the seizure, held that ED is right in holding foreign exchange equivalent to Rs. 5,551.27 crores which has been transferred out of India by Xiaomi India in an unauthorised manner and is held outside India on behalf of the group entity. It is in contravention of Section 4 of the Foreign Exchange Management Act 1999 and the same is liable to be seized in terms of provisions of Section 37A of the FEMA.

The competent authority also observed that payment of royalty is nothing but a tool to transfer foreign exchange out of India and the same is in blatant violation of provisions of FEMA.

ED's case against Xiaomi

Xiaomi India, a wholly-owned subsidiary of China-based Xiaomi group, started its operations in India in 2014 and started remitting money from 2015. The company remitted foreign currency equivalent to Rs. 5,551.27 crores to three foreign-based entities, including one Xiaomi group entity, in the guise of royalty, according to ED.

Such huge amounts in the name of royalties were remitted on the instructions of the Chinese parent group entities. The amount remitted to other two US-based unrelated entities was also for the ultimate benefit of the Xiaomi group entities.

Xiaomi India procures completely manufactured mobile sets and other products from manufacturers in India. It has not availed any service from the three foreign-based entities to whom such amounts have been transferred, the ED said. The company also provided misleading information to the banks while remitting the money abroad.

ED had initiated an investigation in connection with the illegal remittances made by the company in February this year.

Xiaomi India had filed a writ petition before the High Court of Karnataka against ED's order which was dismissed by the High Court.